Jobless rate falls, clouding RBA’s next rate move

The Reserve Bank could be forced into lifting interest rates next month despite growing doubts over the stability of the global economy and financial pressure on home buyers after figures showed a 74,000 surge in full-time jobs across the country.

After signs of a slowdown in the jobs market through December and January, data from the Australian Bureau of Statistics on Thursday showed the national unemployment rate fell to 3.5 per cent in February.

Home buyers have borne the brunt of higher interest rates, with figures showing the jobs market remains ultra-tight.

Flavio Brancaleone

Of the 74,000 full-time jobs created, 41,700 were in Victoria while 10,200 were in NSW. There are now record numbers of Victorian men and NSW women with full-time work.

Unemployment fell by half a percentage point in both Tasmania and the ACT, where the jobless rate is at 3.6 per cent and 2.9 per cent respectively. Underemployment around the country fell by 0.3 percentage points in the month.

Not only has unemployment fallen, the number of hours worked has lifted strongly to be 8.4 per cent above its pre-COVID level. The number of people in work is also growing to stand 6.5 per cent higher than in early 2020.

The surge in work has come despite the Reserve Bank lifting the official cash rate at its past 10 consecutive meetings.

Ahead of the jobs figures, markets and most economists had expected the RBA to hold rates at its meeting in early April because of the uncertainty caused by issues around America’s Silicon Valley Bank and Credit Suisse. Concerns about the two have led to sharp falls in equity markets across the globe. The S&P/ASX 200 has lost 6 per cent of its value since the RBA’s March 7 meeting.

Financial markets on Thursday started pricing in the chance of an interest rate cut by the middle of the year because of concerns about the global economy.

But some economists now say the strength in the labour market may have put paid to a rate-rise pause next month.

Treasurer Jim Chalmers said 278,000 jobs had been created across Australia since the election of the Albanese government in May last year, although the jobless rate would probably increase in the coming months as employment growth moderated.

“A slowing global economy and higher interest rates will inevitably impact our own economy and labour market,” he said.

The RBA has driven the cash rate to an 11-year high of 3.6 per cent over concerns about inflation and of a breakout in wages due to strength across the jobs market.

But critics have argued the sharp lift in interest rates is hitting cash-strapped home buyers, with concerns of a “mortgage cliff” for the millions who locked in ultra-low mortgage rates in 2020 and 2021 and now face a steep rise in their repayments.

A research paper released by RBA economists on Thursday estimated that 590,000 fixed-rate mortgages rolled over to a higher interest rate last year, another 880,000 will be hit this year and then 450,000 mortgages will be reset in 2024.

The Reserve Bank could be forced into another rate rise in April after new figures showed further strength in the jobs market.

Mark Baker

Most home buyers with fixed-rate mortgages face an increase in their scheduled repayments of at least 30 per cent.

Senior ANZ economist Adelaide Timbrell said the job figures supported interest rate rises by the Reserve Bank at its next two board meetings.

“Our assessment of the underlying momentum in the economy, combined with the fact that inflation remains too high, means further tightening will ultimately be required over coming months,” she said.

Betashares chief economist David Bassanese said there was a risk of global financial viability due to the issues in the banking sector. But the RBA would ultimately be guided by the strength of the domestic economy.

“The strong labour market report is one strike against the hope that the RBA will pause in April,” he said.

“Domestically, two other key reports before the next policy meeting are retail trade and the monthly consumer price index report for February. If both reports remain on the strong side, it could be a case of ‘three strikes and you’re out’ for rate pause hopes.”

But HSBC Australia chief economist Paul Bloxham said that, while the February result was surprisingly strong, there was still no sign of a feared surge in wages that might force the Reserve Bank into lifting interest rates next month.

“We see today’s figures as giving the RBA an option to hike further in April or choose to pause. Our central case is that they will choose to pause, leaving the cash rate steady at 3.6 per cent in April,” he said.

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